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Can Bilibili Stock Keep Going After Last Week's 11% Pop?

By Rick Munarriz - May 30, 2018 at 2:13PM

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The Chinese fast-growing anime community is hitting new highs after last week's blowout quarter.

It's fair to say that Bilibili's (BILI 3.87%) first financial report as a public company was a resounding success. Shares of the online entertainment hub for fans of anime, comics, and games shot 10.9% higher last week, rising after posting encouraging financial results. 

Bilibili has only been public for a little more than two months, but it's been a pretty wild ride for its first wave of investors. Underwriters priced its late March offering at $11.50, but investors didn't immediately fall in love with this unique company that has a stranglehold on China's young Generation Z audience. The stock opened at $9.80, and it wasn't until its third week of trading that it finally closed north of its $11.50 IPO price. It's been off to the races lately. The stock is trading 37% higher in May through Tuesday's close, and the shares hit yet another all-time high on Wednesday.

Graphical depiction of Bilibili's many online hubs.

Image source: Bilibili.  

Playing the game

Bilibili's first-quarter results were stellar. Revenue more than doubled, up 105% to $138.4 million. Mobile games -- Bilibili's key driver, accounting for 79% of the revenue mix -- saw its revenue surge 97% for the period. Naturally, that means that the balance of Bilibili's business grew even faster, as live broadcasting and online ad revenue more than doubled.

We're still not profitable here, but the scalable nature of the online business is starting to play out. Margins improved as all but one expense line item grew slower than its top-line spurt. The lone item to outpace revenue growth was its G&A overhead, but that was the handiwork of share-based compensation expenses ahead of the IPO. Bilibili's adjusted net loss narrowed to nearly breakeven at $0.5 million 

The platform's popularity continues to grow. Bilibili attracted a monthly average of 77.5 million active users through the first three months of the year, 35% higher than the prior year's first quarter. Bilibili's prospectus in March pointed out that monthly active users were 71.8 million during the fourth quarter of 2017 and averaged 76.4 million through the first two months of this year. In other words, monthly active users in March clocked in at a record of roughly 79.7 million.

Bilibili's top line is growing even faster as it encourages more of its young regulars to pay up. Average monthly paying users have soared 190% over the past year to 2.5 million. On the mobile gaming front, Bilibili's paying users have grown 79% to 0.8 million. Getting folks to pay up for premium perks is a pretty big deal for online communities, but Bilibili is also milking healthy ad revenue out of its freeloader majority. 

It's true that Bilibili's audience may be too young to monetize effectively. The prospectus indicated that 82% of its visitors are 18 or younger. However, this is also the same group that advertisers struggle to reach as teens today skirt so many of the traditional marketing outlets.

These are exciting and volatile times for Bilibili investors. Analysts and shareholders alike are trying to grasp its true potential as a growth stock. When Bilibili's stock topped $16 for the first time ever this morning, it officially rose above all of the analyst price targets put out by Wall Street pros in the weeks following its IPO. Analysts will have to push their goals higher or call out the stock on valuation. As long as momentum is on its side, it's hard to see the handful of folks covering Bilibili going cold on the stock just as it's heating up.

Rick Munarriz owns shares of Bilibili Inc. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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